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I have so much to write about and just too little time. Major topics include: (1) Syria; (2) Tzipi Livni, John Kerry and the Peace Process, and (3) Lapid and the Budget. There are also a number of minor topics from Women at the Wall to Stephen Hawking. However, Yair Lapid tabled his budget this past week when I was otherwise preoccupied. The implications are important so I will write on the budget first.

In my blog on February 4th, I asked, “in a budget of NIS 350 billion largely locked into a third for interest payments on debt, another third for salaries and the other third with little room for flexibility, how can any finance minister come up with NIS 15 billion in cuts and additional revenues of about NIS 30 billion? I also wrote that Lapid’s stated priorities were to:

1. Reduce the cost of living by every means at its disposal (part of the coalition agreement);

Finally, I also wrote that Israeli direct income taxes and indirect value added taxes now offer few incentives for any increase. Yet, as we shall see, these became the main sources for extra revenues. More importantly, there are more than sufficient revenues available by simply closing what in North America are called loopholes and in Israel are called incentives; very few of these were att. In preparing for this budget, I only managed to examine seven of twelve areas of the economy in order to understand the possibilities for the Israeli economy. The five areas still not covered include those with the largest expenditures: health, education, housing, defense and the support for the Haredi sector.

The total budget was NIS 296 billion for 2013 and in 2014 it will grow to about 304 billion shekels. Instead of the proposed cuts of NIS 15 billion and additional revenues of NIS 30 billion, the ratio of cuts to expenditures has been reversed. Planned cuts are NIS 30 billion (roughly 1/3rd for 2013 and 2/3rds for 2014. Planned new revenues are NIS 12-14 billion. Because the budgeted cuts run from July 2013 to the end of 2014, 18 months instead of 12 months, the cuts are only about 25% greater than anticipated. The real change is in the revenues which are much less than had been expected. Based on current committed expenditures projected forward, the deficit would have reached 5.5% of GDP by the end of 2014, up from 4.2%. Given the increases in revenues projected as well as the cuts in expenditures, the deficit will still actually increase as a percentage of GDP, up to 4.65 % this year and only reach the targeted 3% by the end of 2014.

Last year, Israel spent $US15.5 for defense (NIS 55.5 billion), almost 7% of its GDP, but that budget excluded US$3.1 in US aid. The largest single cut was expected to come from the defense budget – NIS 4 billion, but this was, in fact, a smaller cut than expected and smaller than cuts elsewhere. A cut of NIS 4 billion from a budget of NIS 55.5 billion is a cut of 7.2%. Part of the spanner thrown into the defense budget was sequestration in the United States which has meant an automatic US$300 million cut or one-quarter of the Israeli cut. Excluding the US cut, the actual cut is only about NIS 3 billion. Further, the American portion of the cut could come from the Dome and Arrow defense missile system (total value $US 429 million) that seems to be increasingly necessary given the build up of rockets by Hamas and especially Hezbollah, but President Obama seems to have gone out of his way to earmark that part of the US$3.1 billion allocated to Israel. Today, Israel’s security cabinet will discuss those proposed cuts to defence. Given the visible threats from Syria, Hezbollah, Gaza and Iran, do not expect those cuts to stay firm.

As far as I have been able to make out, the cuts will be as follws – please offer corrections. Infrastructure and transportation support will be cut by NIS 2.75 billion in this year alone and 5 billion next year. There is no costs included for the additional number of accidents due to bad roads. Education will be cut by NIS1 billion. The amount of the cuts from welfare and health was not known but is expected to be another NIS 2 billion. But a separate cut of a staggering NIS 3 billion shekels was scheduled to come from child allowances and support for day care programs. At the same time, child benefits will be cut from NIS 175 shekels per month to NIS 140 shekels per month, an enormous almost 17.5% cut. These cuts, if they hold, will be expected to total NIS 2.75 billion in 2013 and an additional NIS 3 billion in 2014. Cuts to settlers and haredim are expected to total NIS 2 billion. The wage freeze plus NIS 2 billion cut in public sector wages is on hold until Treasury negotiates a deal with Histradut.

Total CutsYearNIS in billions

Defense 2013-14 3

Transportation and infrastructure 2013 2.75 2014 5

Education 2013-2014 1

Child Welfare 2013 2.75

2014 3

Health 2013-2014 3

Haredi and settler support 2013-2014 2

Bureaucratic Fat 2013-2014 3.5

Technology Sector 2013-2014 .6

Sundry incl. wage cuts 3.4

Total 30

If NIS 2+ billion more came from cuts in a 12 month budget, NIS 10 billion less came from revenues, NIS 20 billion instead of NIS 30 billion. Since revenues were also calculated over 18 months instead of 12 months, though some come into effect only in 2014, the target is less than half of the amount anticipated. So the distribution between expenditure cuts and revenues is made much more even and the target for revenues is lowered effectively by one-third. The total anticipated increase in revenue by the end of 2014 is expected to be NIS 4 billion in 2013 and NIS 14 billion in 2014.

The Value Added Tax (VAT) is increased from 17 to 18% expected to yield about NIS 20 billion over 18 months. Additional VAT income is expected to come from a number of exclusions, especially in the tourist industry that will significantly affect the incentives for going to Eilat. Israel already enjoys a single-rate VAT with very few exemptions and this step will reduce them further. Another source of revenue is to come from tax increases set to come into effect in January 2014, an increase of 1.5% for those earning NIS 5000 shekels a month. That means not only that that everyone with a gross income of more than US$15,000 per annum will be paying an increased tax of 1.5% but that the greatest percentage increase, from 14% to 15.5%, will fall on middle income earners paying taxes. Their increased tax burden goes up by 7%. Since half of Israelis earn under NIS 5,812 a month and half of those earn less than NIS 3,451 per month. On the other hand, health taxes will only be increased for those in the highest income bracket, over NIS 40,000 a month, or an upper middle income tax bracket. The increase will be .5%. Increased revenues will also come from pleasure taxes, namely tobacco and alcohol. Further, a new 25% land betterment tax, or speculative residential property tax will be levied on those who own second apartments with a minimum monthly revenue. The tax will be 25% of the profits, and profits are not discounted for inflation. There will also be a tax of 35% on pension income of over 15,000 shekels per month.

The distribution of those cuts is even more interesting. Consider the technology sector first, the growth engine for a start-up nation and a knowledge economy. Netanyahu cut the technology sector support budget 10 years ago and Lapid cut it again. As a result of the ten year old cuts, the hi-tech sector stagnated, employment in the hi-tech sector also stagnated both in the sense of failing to grow at or above the rate of the Israeli economy in general. Further, the enrolment in hi-tech university programs has also not increased. In 2001, the hi-tech budget was NIS2.3 billion. In 2007 it was NIS 1.4 billion. Last year it was up again to NIS1.57 billion but Lapid cut the hi-tech budget by just over a third to only NIS1 billion.

Revenue could have been obtained by increasing the corporate tax rate by more than 1% but this would have run counter to the shelved plans to reduce corporate tax rates from 24% to 18%. Similarly, plans to reduce the top rate of income tax from 45% to 39% have also been shelved (the Trajtenberg Commission). The surcharge on incomes over NIS 1 million has been retained but not increased. It is not clear how efforts to enhance Arab women and Haredi participation in the work force are calculated in the budget in terms of enhanced revenues as well as reduced expenditures. I also do not know how the increased taxes on second apartments are factored into the budget.

Israel has also been unique in having a two year budget cycle since 2009 instead of a one year budget presumably allowing better planning but accomplished only through greater rigidities and less flexibility. This 18 month budget may create more benefits and put less emphasis on rigidities, but we will have to see. However, I consider this a disastrous budget for the poor and almost as bad for the lower middle classes totally contradicting the goal of reducing economic disparities and launching a fight against poverty. VAT increasingly weighs heaviest against the lower income groups in society; it is a regressive tax. The next target is the lowest tax bracket of earners. These are the income earners who will suffer most. When one adds the significant tax cuts planned to child benefits and to support for day care, as well as other cuts not so much in the public eye, such as cuts to paying for dental treatment, then it is clear who is hit worst. In contrast, corporations only have to bear an additional 1% in corporate taxes and the option of closing the vast majority of loopholes has been lost.

Note, unlike Canada, this is a proposed budget – other Ministers will jockey for changes. Expect changes before a final proposal goes for debate before the Knesset. My own suspicion is that the 18 month cycle is meant to make it harder to calculate comparisons rather than for either planning or flexibility considerations. Nevertheless, whatever changes are made, there is no indication that the budget will reduce the cost of living, enhance free market competition or reduce economic disparities in the fight against poverty.

Tomorrow morning I will be in the hospital to have a stent put in a coronary artery so my next blog may have to wait until Tuesday.

Dan Gertler is a 40 year old Israeli billionaire president of the DGI (Dan Gertler International) group of companies who became involved in Africa and, in particular, the resources in the Democratic Government of the Congo (DRC formerly Zaire). Steeped for his whole life in the family diamond business, he was only 23 years old when he founded DGI after completing his IDF service in Israel. He had learned the diamond trade from his father and famous grandfather, Moshe Schnitzer, who initiated and was the first President of the Tel Aviv Diamond Exchange. He set up his own firm because he believed the big profits were not to be found in the labour intensive part of the business, cutting and polishing raw diamonds, but acquiring and selling the raw diamonds themselves.

Though I never met him, our paths crossed in 1997. At the end of 1994, I and a Norwegian colleague, Astri Suhrke, had been commissioned by an international consortium of governments, humanitarian and devlopment agencies to research and write a report on the international community’s role in the 1994 Rwandan genocide in which 800,000 Rwandan Tutsis and moderate Hutus were slaughtered in ten weeks by Hutu Rwandans led by an extremist group, the Akasu, who won control over the Rwandan government on 6 April 1994 in a coup d´état.

We finished our report a year later and it was very widely lauded except by the President of Uganda, Yoweri Museveni, the Belgians, and the French. Yoweri Museveni criticized us for saying that the evidence overwhelmingly suggested that Museveni must have known about the desertion of the Rwandans from his army and the invasion of Rwanda on 1 October 1990 when Museveni kept insisting he had no knowledge. The Belgian complaint was rather mild; they had a harsh judgement of the Canadian General Romeo Dallaire’s role as the head of the United Nations Peacekeeping Force and were especially critical of his role when the Belgian peacekeepers were murdred by the military extremists in Rwanda. We, on the other hand, regarded Romeo Dallaire as somewhat of a hero.

The French criticisms were much more serious and of a much higher order and very much stronger that the other two. They were apoplectic about our claim that France continued to supply arms to the extremist regime in Rwanda even after the genocide had commenced on 6 April 1994. The disagreement led the French government to cancel a high level trip to Paris from Sweden, withdraw its financial support for the commission (which Finland volunteered to make up) and to denounce us in the most vociferous way. We offered to reconsider and offered to travel to Paris to see the French evidence; we agreed to rewrite if the evidence contradicted our findings, including findings we had from French government sources in our previous trips to Paris. The Canadian ambassador at that meeting in Copenhagen came up to me after the brouhaha and told me, “Howard, stick to your guns. I was on the tarmack of Kigali airport after the genocide started and saw French arms being unloaded by a private carrier onto the tarmac.

We went to Paris but the French government was not co-operative and provided no new information. We let the report stand as we had written it. As it turns out, we were incorrect about the claim that the French government continued to ship arms to Rwanda after the genocide started. At the end of 1996, as a result of Paul Kagame’s Rwandan army overrunning the refugee camps controlled by the Hutu extremists then based in Zaire, documents were found by an Italian jouirnalist and sent to us which showed that the arms with French markings were supplied by a British firm based in the Isle of Wight and the arms had come, not from France, but from Eastern Europe supplied via a middleman, an Israeli-Hungarian.

Our involvement in Zaire, still led by Sese Seku Mobutu, began as we followed the plight of the more than a million ex-FAR (old Rwandan army), their families, militias involved in the genocide in Rwanda as well as other civilian refugees inrto Zaire. After failing in their efforts to launch military raids against ther new government, they began a genocide againt Tutsis in Zaire. Paul Kagame, then President of Rwanda, warned the international community that if the invasions and depridations of the ex-FAR and militias in Zaire were not stopped, he would take action. The international community stood by. Kagame in alliance with Museveni of Uganda invaded Zaire. They involved a small number of Congolese and appointed Laurent-Désiré Kabila as the spokeman for the supposedly indigenous uprising against the crimes being committed in eastern Zaire. (This narrative is filled out in our book on the DRC.)

In the process of the invasion, Laurent Kabila, an old Lumumba supprter who for the last twenty years had made a lliving as a smuggler, promoted himself step by step to the military and political leadership of the invading force. Further, not satisfied with overcoming the control of the refugee camps by the ex-FAR and winning military victories over Mobutu’s forces that had been in league with the ex-FAR forces, and against the wishes of his Rwandan and Ugandan patrons, Kabila decided not to stop but to go onto Kisangani, which he overran, and then head for Kinsasha and the complete overthrow of the Mobutu regime.

One set of masters, controllers and expoiters of Zaire’s – now renamed the Democratic Repiublic of the Congo (DRC) – resources, were replaced by a new group – Kabila in competition with Uganda and Rwanda for control. What ensued was Africa’s first continental war in which DRC’s immense mineral resources became the prize. In 1997, Dan Gertler flew to Kinshasha and was introduced to Laurent Kabila through the Lubavitcher rebbe, Rabbi Chlomo Bentolila, based in that city. Without his Rwandan and Ugandan patrons, Kabila was strapped for funds to pay his soldiers. Gertler offered to loan Kabila US$20 million in return for a monopoly control of the diamond production in the DRC. Kabila agreed. Within weeks, Gertler raised the funds that became the foundation of his personal fortune.

Five East European Israeli billionaires stand out. I begin with sixty-one year old Arcadi Gaydamak (Arie Bar Lev) who owns residences in Russia, Israel and Canada and has citizenship, not only in Israel and Canada, but in Angola and France as well. Though born in Berdichev, Ukraine, though also reported as Moscow, he had to surrender his Soviet citizenship when he migrated to Israel in 1982 when he was twenty years old. Four years ago, he applied to “regain” his Russian citizenship.

The outline of his life is anything but simple, but I will first offer a potted history. Gaydamak became a kibutznik at first (Beit HaShita), but Israel appeared to be initially only a pit stop to escape Russia. He studied Hebrew in an ulpan but in six months was unable to master the language before he moved to France after six months. Initially, he worked as a labourer and gardener. In 1976, he started a translation service, Gaydamak Translations. He used that business to “migrate” to Canada as a business investor and opened a translation business there. His initial real wealth stake did not come from this business but from the connections he had established through that business with Russian officials to engage in import and export transactions, especially when the Berlin Wall fell and the Soviet Union was imploding.

My path crossed with Gaydamak, though again I never met him, from my work in Africa after 1994. My personal connection was through our study of President Mitterand’s son, Jean-Christophe Mitterand, of the arms supplied to the Rwandan Habyarimana regime mentioned in a previous blog. Mitterand worked out of a separate section located in the Ministry of Cooperation in Paris to supply arms to President Habyarimana of Rwanda, even though we were incorrect that this arms supply continued after the genocide started. Mitterand was involved in shipping arms in other parts of Africa, including Angola where he became intertwined with the Gaydamak/Falcone arms for Angola deal. Pierre Falcone through his British companies linked to Brenco International gave £1.3m in alleged bribes to Jean-Christophe Mitterrand, but Arcadi Gaydamak claimed the money paid in 1998 had nothing to do with the arms deals. Jean-Christophe was found guilty by the French court of tax evasion in relation to the Angolagate scandal and given a 30-month suspended sentence.

Gaydamak became involved in what became known as the Angolgate Scandal, the arms for oil and forgiveness of debt deal between Russia and Angola in 1995 and which I will explore later on in this profile. But let me jump to the end and a sports story that appeared in the Canadian Jewish News at the end of February written by Yair Lootsteen about why he would not let his son, Natan, attend the games of the Beitar Yerushalyim football (soccer) team though he was an ardent fan. At the games, many fans, especially those led by an ardent group called La Familia, booed Arabs on other Israeli teams and would call out, “Death to the Arabs!” and “Muhammad is dead.” Hundreds of police were required to control the “enthusiasm” of these hooligans.

In 2005, Arcadi Gaydamak bought the football club. This year he bought two Muslim players from Chechnya to join the club, Zaur Sadaev and Gabriel Kadiev, as much to combat Beitar’s racist image as to add skills to its roster. Beitar had Muslim players before, namely Viktor Pacha of Albania, but since Nigerian defender Ibrahim Nadala had been harassed by anti-Muslim (and anti-Black) fans and left the team, Beitar had not had any Muslim players in contrast to most Israeli teams.

At the next game, in response to the two new Muslim players on the team, La Familia led the hooligans in chants of “Beitar is Pure Forever” and torched the team’s clubhouse, including its trophy room with the team’s historic relics. At the next game, fans with La Familia sweaters were banned from entry and Gaydamak organized fans to hold up welcome signs to the two new players. When some fans tried to boo Kadiev when he came onto the field, the majority of fans rose to give him a standing ovation and drowned out the boos. Lootsteen offered to take his son to the next Beitar game for the first time.

Gaydamak has taken other bold humanitarian gestures in the past – the two most notable in Israel involved setting up a huge tent city on the beaches of Nitzanim at his own cost for the evacuees who had fled the north to escape the rockets during the Lebanon War in 2006, Gaydamak also offered holidays in Eilat for residents of Sderot who lived under a barrage of rocket attacks from Gaza before the last Gaza War. My own conviction is that these were genuine gestures though clearly also serving to polish his public image in Israel.

In the previous decade, Gaydamak had been awarded the Chevalier de l’Ordre National du Mérite and the Ordre du Mérite agricole ostensibly for contributions to agriculture but for allegedly secretly rescuing two captured French pilots in the 1990s Balkan War and two French intelligence officers captured by rebels in the Caucasus. In 1997, he was also involved in freeing four French aid workers being held in Dagestan. Former French interior minister Charles Pasqua, his co-conspirator charged before the French court (see next section), insisted that the awards had been personally approved by Jacques Chirac. In March 2006, he tried to buy the newwspaper, France Soir.

In February 2007, Gaydamak established Social Justice and converted it into a political party in July in Israel ready for the elections and won three seats. He was also an unsuccessful contender as Mayor of Jerusalem in the November 2008 elections and only won 3.6% of the vote and no seats on the municipal council. In Russia, he gave money to Jewish charities and funded and was president of the Congress of Jewish Religious Communities and Organizations of Russia (KEROOR). In 2004, he also bought the independent Moskoviskie Novosti and converted into a strongy pro-Putin advocacy sheet under his insistence that newspapers should be loyal to the powers in charge of the state. “Newspapers which are responsible for public opinion should not direct the public against the powers that be…If the political and administrative structures in Russia are organised by people elected in free, democratic elections, it is not right to turn public opinion against them.”

Do we have to ask, “Why the enormous effort to polish his public image?”

When Arcadi Gaydamak applied for Russian citizenship in 2009, it was just days before the French court was to hand down its verdict in the “Angolagate” arms-dealing affair to add to his troubles over very recent steep financial losses, largely as a result of former associates double-dealing him, and investigations by the Israel Security Authority of alleged fraud and money-laundering using Bank Hapoalim. Just this past January 2013, The French Court of Cessation upheld the original findings and sentences meted out to 3 of the 24 of the original 36 charged in the Angolagate scandal who had appealed their convictions on 27 October 2009. The French Court of Appeal in April 2011 had reduced Gaydamak’s sentence to 3 years, Falcone’s to 2.5 years and Charles Pasqua was acquitted on his first appeal. The French Court of Cessation upheld the original six year prison sentences as well as one year for former interior minister, Senator Charles Pasqua.

What were their crimes? In 1975, Angola gained its independedence only to become a site for further civil war between factions serving as either South African (American?) or Soviet proxies. With the demise of his Soviet sponsors in 1989, the Angolan government of Jose Eduardo dos Santos wanted to seek western support but encountered two problems – UN sanctions and a huge burden of indebtedness left over from the Soviet era representing two-thirds of its annual GDP. Dos Santos was still in the midst of the civil war as the MPLA tried to finally eliminate its long time opponent, Jonas Savimbi’s União Nacional para a Independência Total de Angola (UNITA). (Savimbi died in 2002 effectively finally ending the long civil war.) At the same time, the 1991 Bicesse Peace Accords forbad the import of additional lethal weapons.

The Angolan government sought to purchase combat helicopters, guns and ammunition from Russia using a Slovak company, ZTS-OSOS to be paid with the exchange of oil. Dos Santos turned to private entrepreneurs to assist him by trading diamonds and oil for armaments just as Joseph Kabila had in the DRC, but using Pierre Falcone in partnership with Arcadi Gaydanak who had the Russian connections to access the arms and get around the UN sanctioned weapons embargo. Arcadi Gaydamak and Pierre Falcone were given authority to control an Angolan bank account in France and authorized to sign contracts on behalf of ZTS. The profits on the oil were estimated at over £50million.

Falcone was born in Algeria, moved to France when he was six when Algeria achieved independence, and began his entrepreneurial life in Brazil, but eventually obtained Canadian citizenship. Falcone and Gaydamak orchestrated the delivery of US$790 million in Russian arms contrary to the sanctions. However, the initial French appeal agreed with the claim that, since the two had Angolan citizenship and were acting as official agents of the Angolan government, they were not bound by French sanction laws.

However, the really big profits were not made through arms sales – though, as you read, those profits were huge – but as agents in reducing, purchasing and reselling of debt instruments at no risk to themselves. In April 1996, Angola owed Russia $US386 million for past arms purchases. Angola also owed Russia $5 billion in debt left from the Soviet era. On 24 April 1996, the Angolan Minister of Economy and Finance, Augusto da Silva Tomás, issued a formal mandate that designated Pierre Falcone and Arcadi Gaydamak as agents empowered to act on Angola’s behalf to settle its $US5 billion debt. Arcadi Gaydamak and Pierre Falcone, joint owners of Abalone Investments, a shell company, negotiated a settlement of the debt. The $US5billion debt was to be reduced by 70% to $US1.5 billion to be repaid after a five year grace period dated from 20 November 1996 and then repayment over fifteen years of the reduced debt plus acrued interest calculated at 6% per annum assessed every six months and secured by a promissory note from the Angolan Central Bank. Andrey P. Vavilov, Russia’s First Vice-Minister for Finance, signed the deal on behalf of Russia. Effectively, Angola was supposed to repay a total of $US2,896,596,000 made up of the reduced capital debt of $US1.5 billion, the accrued interest during the grace period of $US457,160,000 and $US939,437,000 for interest during the fifteen year repayment period.

Abalone earned a “commission” of $US386 million, of which just over $138 million went to Gaydamak and almost $US125 million to Pierre Falcone, and just under $US49 million to Vitaly Malkin, the richest member of Russia’s Duma, who just recently resigned when it was revealed that he held Israeli as well as Russian citizenship and held large amounts of undeclared assets in Canada.. The balance of just over 30% of the funds were used to pay off a wide variety of other players including the Angolans who received $US110 million. The three greatest Angolan beneficiaries were José Eduardo dos Santos, President of Angola, US$36.25 million; Elísio de Figueiredo, Angolan Ambassador to France, $US17.55, Joaquim Duarte da Costa David, Director General of Sonangol until 1998 and then Minister of Industry, $US 13.25 million.

There was another level of profit when Russia decided to sell those notes to Abalone for 50% of their face value in six equal instalments for a further profit to Abalone over the next six years of almost $US500 million when Abalone resold those notes to Sonangol for their full face value in accordance with an agreement dated 30 May 1997. Abalone in the end effectively only paid about $US265 million for them. There were other levels of profits, some to Glencore for making the escrow arrangements and facilitating the pre-financing secured by prospective oil deliveries via Sonangol as collateral on which it undoubtedly made a further large profit. In 1999, Vitaly Malkin, as the representative of Rossiyskiy Kredit Bank (RK) which he owned, bought into Abalone by paying Gaydamak $US60 million and another level of profits were arranged when Russian Principal Notes (PRINS) and Instruments Arrears Notes (IANS) were exchanged at their depressed values for other secured notes at full value to Russia’s benefit by showing a reduced debt and to Abalone’s benefit by obtaining a huge profit since, when the deal went into effect on 23 August 1999, PRINS had a value of only 10.54 per cent of face value and IANS had only a 14.41 per cent face value.

In 2001, facing investigations of all these transactions, Gaydamak shifted the banking to Cyprus through Sherinvest Bank owned by Gaydamak and gave the impression that the debt repayments were going to Russia since Sherinvest Moscow was the name of Russia’s banking agent in Moscow. Since neither Falcone nor Malkin knew anything about this, Gaydamak had effectively double-crossed his partners. Between March and August 2001, Sonangol transferred $618,235,483.25 to Sberinvest. Angola was told that the debt had been repaid but Russia had not received the final eight payments. The deal blew open in 2005 and Angola agreed to pay Russia the balance owed. Gaydamak agreed to pay Angola $206 million which still left him with a profit of $US 181 million on the deal.

As he jockeys back and forth from Israel to Russia and avoids France, France has been unsuccessful in extraditing Gaydamak from Israel. Israeli law did not make his financial matters an extraditable offence. Nor were the other charges of arms dealing an offense at the time the actions were taken. There is, however, an ironic twist to the whole series of shill games. In 2006 and 2007, Joelle Mamane, his long time confidante and micromanager, transferred US$249 million in securities from Gaydamak’s company to the Manatel Foundation evidently without Gaydamak’s approval and evidently not for his benefit. Because there were so many levels of covers, Gaydamak had not been able to establish ownership. The Manatel Foundation gives its money away to Orthodox Jewish causes in Israel and Europe.

For a very long and very detailed dissection of all these deals, see “Deception in High Places: The Corrupt Angola-Russia Debt Deal.”

Israeli billionaires come in many varieties and types. Noam Lanir stands in contrast to Dan Gertler. First, he is a hi-tech billionaire. Though also in his forties, Lanir does not run a myriad of offshore companies; he focuses on a few engaged in marketing services – gambling, translation and medical tourism. He is the CEO of the Livermore Investment Group. (Empire Online) of which he is the major shareholder. Instead of coming from an observant background of a family involved in a traditional Jewish business – diamond cutting and sales – his father was an Israeli pilot and hero. In the Yom Kippur War, his father’s plane was shot down over Syria when Noam Lanir was only six years old; his father was captured, tortured and died in captivity.

Lanir served in the IDF pioneering in training for guiding pilotless aircraft. As indicated in my blogs on drones, such a technology is based on calculations of probabilities to forecast trajectories. Gambling is also about risk calculation. However, when he was discharged from the IDF, he first went into the club business. In 1997, at about the same time as Dan Gertler entered the DRC. Lanir entered the gambling realm by becoming the marketing manager for a lottery for the Association for the Well-Being of Israel’s Soldiers – Aguda Lemaan Hachayal. A charitable organization, it provides R&R for soldiers, recreation and sports facvilities, educational centres and programs, help for bereaved families of fallen soldiers and a host of programs for veterans, including scholarships and a variety of assistance programs for soldiers with disabilities. Lanir has remained very active and supportive of this charity as his wealth has grown.

After leaving his stint at Aguda Lemaan Hachayal, the following year he registered Empire Online (EO) in the Virgin Islands not as a gambling site itself, but as a site to host gambling sites run by others and undertake the marketing for them. Lanir does not operate in Israel or provide access to Israelis who want to gamble. Empire Online is more accurately depicted as an internet technology and marketing company specializing in hosting and promoting gamling sites than operating any gambling site itself.

By 2005, there were 186,000 gamblers using the site, 70% of them Americans. EO referred them primarily to two gambling sites, PartyGaming (72% of its 2004 revenue of US$65 million) owned by the Parasol Group (Anarag Dikshit, Vikrant Bhargava and Russ DeLeon) and Casava (27%) owned by Ari and Aharon Shaked and and Shai and Ron Ben Yitzhak. PartyGaming founded in 1997 was a network of gambling sites with itsd flagship site, PartyPoker, launched in 2001.

Each of these gambling sites could terminate their contracts on short notice for a wide variety of reasons. Why were they willing to allow another site called a “skin” to skim off parts of their profits for simply a hosting and marketing service, particularly since those actual gambling sites encouraged gamblers to register directly on their sites? Why have Empire Poker serve as a gateway to Party Poker? There appear to be a number of reasons: 1) these clients were regarded as bonus gamblers, gamblers they might not otherwise have had; 2) since the sites were recommended by a third party that appeared to be neutral with respect to all gambling sites available, the hosting and marketing site enhanced the credibility of the actual gambling site for honesty and credibility, especially since players were wary of internet sites cheating by using improper shuffling of the cards, insider playing or collusion; 3) since the success of a gambling site depends on attracting a critical mass of gamblers, the function of luring gamblers to a gambling site is triply important; 4) most of the gamblers using those sites are American and American federal authorities consider online internet gambling illegal but then lacked a specific enforcement law – operating at two levels provided a degree of protection for the actual online gambling site for the site on which they register is not a gambling site and cannot be banned from taking credit cards under then current regulations; 5) Party Gaming was valued at US$8 billion is 2005, so why begrudge giving away some of its profits to another company which does so much to enhance its own value.; 6) the competition was already very tough among online gambling sites with up to 200 estimated competitors with giants such as Hurrah Entertainment and BetFair, so that anything enhancing the value of one’s own site is worth supporting.

In 2004 alone, 34,000 new gamblers enrolled on gambling sites through EO’s efforts. In 2004, on gross revenues of US$65.2 million with only 60 employees, it netted $US 37.7 million. That meant that with such revenues, especially given its growth potential – the existing world wide online internet gambling was then estimated to be worth $US!2 billion and growing rapidly – the company’s market value could be estimated to be almost a billion American dollars. Sure enough, by the time it was ready to go public on the London stock exchange, its IPO was valued at up to one million British pounds and when the flotation was about to be launched, it reached a value of US$928 million.

However, at about that time, EO’s relationship with Party Gaming began to sour. In mid-2005, Party Gaming began to “ringfence” its players from EO and upgraded its PartyPoker site to cut out EO from accessing its players. In November 2005, Party Player terminated its relationship with EO. EO sued in the High Court of Gibralter. In February 2006, the two companies agreed to an out-of-court settlement that paid $US250 million to EO. Further, in December 2006, Party Player agreed to acquire Lanir’s remaining shares in EO for $US40 million. It was estimated that Lanir ended up netting about a third of a billion American dollars.

The timing was propitious. In 2006, the United States Congress passed The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) to regulate online gambling. On 2 October 2006, PartyGaming suspended “all real money gaming business with US customers” when George Bush signed the act into law on 13 October. The value of the shares dropped by 60% in 24 hours.

To attract players to EO’s site from many different companies, EO had to develop a translation facility. Lanir purchased and retained ownership of Babylon Inc., an online dictionary and translation service. Using a database of 1400 sources, the company provides services in 75 languages. In addition to covering a wide variety of technical fields, it also offers audio pronunciation services. Listed on the Tel Aviv stock exchange, in 2012, annual revenues totaled US$178 million.

In 2010, Lanir entered the medical tourism business and started a company, Life Tree Marketing, to market high quality health services in Israel – initially surgical services and in vitro fertilization, a field in which Israel is a world leader. Life Tree Marketing initially targeted Eastern European clients. Increasingly, American patients have been attracted because of the significantly lower costs for equivalent service in the United States. Heart bypass surgery that costs $120,000 in the US costs $30,000 in Israel. In vitro fertilization that costs $30,000 in the US costs $3500 in Israel.

His company is in competition with International Medical Evaluation and Referral (IMER) owned by Hadassah Hospital or the Ramat Aviv Medical Center that also serves the medical tourism business. Like his gambling site, his is a marketing site and his company enters into partnerships with hospitals that actually provide the services from which Life Tree rakes off 20% of the fees charged to cover its costs of attracting clients and making the arrangements for them to get to the facilities in Israel. There are already contracts with the Shaba Medical Center, Tel Hashomer Hospital, Shaarei Tzedeck Medical Center and Wolfson Hospital. Annual revenues are already estimated to have reached $US20million.

Stef Wertheimer is a much older entrepreneur, twice the age of Noam Lanir and probably four times the wealth. He is worth at least US$4billion. Originally born in Germany, his fled the Nazis when he was eleven years old and settled in Israel. Although Wertheimer attended an excellent school, he dropped out at the age of 16, surprising in retrospect for someone who puts such a high value on training and education. During WWII, Wertheimer worked for and studied optics with a pioneering researcher in the field, Emmanuel Goldberg, and then joined the British airforce to repair optical equipment installed on British aircraft. After the war, he served in the Palmach and eventually served as a technical officer in the Yiftach Brigade.

ISCAR, one of the largest manufacturers of carbide industrial cutting tools with 6,000 employees worldwide; it was started by Wertheimer in 1952 as a backyard sheet metal cutting operation. It was sold to Bershire Hathaway in 2006 for US$5 billion. The Wertheimer family retained ownership and control of Blades Technology valued at US$1 billion. Sceptical of high tech companies and entrepreneurs or making money off natural resources, whether it be the discovery and export of gas from Israel’s new fields or from buying the raw materials of other nations, Wertheimer is a true believer in the old industrial economy as the backbone of a nation’s wealth. To develop that wealth demands providing workers with the necessary high level of skills to engage in manufacturing, and to ensure that all citizens, whether, religious Jews or Arabs, Haredi or secular, Druze or Circassions, are properly skilled. He is an equal opportunity employer.

Whatever the value of this wealth obtained from the older manufacturing centres, a great part of Wertheimer’s money has come from the development of industrial sites where manufaturing on all levels takes place. In the eighties, Wertheimer focused on comprehensive sites that included not only manufacturing, warehousing and shipping space, but educational, recreational and transport facilities as well. He has been a pioneer with Shimon Peres in using economics to promote peace by fostering co-ventures and cross border industrial parks. This initiative was successful in Nazareth but unsuccessful in Gaza once Hamas took control. Wertheimer envisions such parks, not simply as real estate plays, but as incubators of innovation, worker training and start-up companies. Wertheimer helped found the Democratic Movement for Change and was elected onits list in 1977 and joined Shinui in 1978 when DASH broke apart but left politics in 1981. Currently, he is an active member of Tzipi Livni’s Hatnuah.

He is a winner of the Israeli Prize and was given the Oslo Business for Peace Award in 2010. He is highly esteemed in Israel.

Before I took time off to write blogs on films showing at the Toronto Jewish Film Festival, in my economic series on Israel, I wrote on tycoons and billionaires to get a sense of many of the top individuals who have driven their own stories of rags to riches as well as the story of Israel’s rise into the top tier of developed countries. In the first one of this series, I wrote about the political and social as well as economic impacts of a dozen or so Israeli billionaires — including Shari and Micki Arison, the Ofer brothers, David Azrieli, Noam Gottesman, Arnon Michan, Meir Doron, Joseph Gelman, Marc Rich, and Haim Saban, many of whom live outside of Israel and made a good part of their fortunes outside Israel. I also wrote about two impressive but very different Mizrachi billionaires, Shilvan Eliahu and Yitzhak Tshuva. Today and tomorrow I want to concentrate on a smaller group of Israeli billionaires who also made their fortunes primarily in Israel, but come from an Ashkenazi or Sabra background. On Tuesday, I will write about the East European Israeli billionaires.

Gad Zeevi is an Israeli born tycoon who was accused of stock fraud and money laundering in 2006, disappeared from the public eye, went through a long trial until the judge declared him NOT guilty in March of 2011, finding that the sale of his shares “was neither false nor unreasonable”. As Judge Daniela Cherizli concluded, “There was no conspiracy, and I therefore acquit the accused of all charges in the indictment.” I begin at the end of the story because if you read the ruling, it becomes clear that when there is smoke, sometimes there is no fire. There is just deep suspicion about people who are worth billions. Some rich people are certainly guilty of making their money through fraudulent means. But making money is not itself fraudulent. Further, even the ultra rich can be subject to bullying by zealous prosecutors convinced that something was amiss.

Further, bureaucrats sometimes interfere with entrepreneurial activities and initiatives even when they are not against the law. In the 1990s, when Gad Zeevi made a move to acquire the controlling interest in Bank Mizrachi, though there was no law at the time against his effort, Ze’ev Abeles, the supervisor of banks, kept insisting that he had to inquire further into the Zeevi group of companies activities in Africa, endlessly postponing a decision, until Zeevi just gave up. As it has been said, the problem in Israel is not one of a normal bureaucracy with too many rules and too many levels of decision-making, but government functionaries who are as entrepreneurial about their duties as any businessman. They make up the rules as they go. Israel is burdened with an anti-bureaucracy bureaucracy, where bureaucrats practice the art of creative decision-making.

This occurs at all levels. When I was in Israel in the late seventies as a Lady Davis Visiting Professor at Hebrew University, I knew I had to get my VW camper van out of Israel before a year was up or I would be subject to a huge tax. I was due to leave with my oldest son from the Port of Haifa two days after my year was up. So I drove the camper van down to Haifa two days before the expiry of the period, just to be safe, and put it into the export area from which I could drive it onto the ship when I was leaving four days later. When I did this, the port authorities informed me that a small licensing fee had been due at six months and that I should go to the Jerusalem office where I lived to pay the fee and when I showed them the receipt, I would be permitted to take the VW van out of Israel.

The official was very helpful and gave me instructions on where to go on King George Street in Jerusalem and how much I would be required to pay. I had two days to accomplish this task as well as complete our packing and preparations to move three days hence. Early the next morning – at 7:00 a.m. – I stood in line on King George Street. I was second in line when the office opened at 8:00 a.m. By the time it opened, there were about twenty people waiting to get in. When the door opened, I asked the person where to go and she directed me to the second floor to pay license fees. I scurried up and was no longer second in line but about sixth and it took me until 9:45 a.m. to get to the front of the wicket.

I then showed my license and had the exact amount of lira (money had not yet been changed to the new Israel shekel) in hand to pay. The clerk condescendingly told me that a license fee was not due, but an import duty was. That office had moved two years ago. She tersely gave me an address. It was in a new industrial area of Jerusalem. I ran outside and grabbed a cab. It took twenty minutes to get there.

The line had about sixteen people in it when I got there at 10:22. I despaired, but quickly cheered up when it seemed to be moving reasonably quickly. I learned later that the reason the line moved so quickly was that most people were sent away to get more documents in order to complete the transaction. Further, the son of the Imam from Jerusalem was standing behind me in line and we struck up a very enjoyable and interesting conversation. When my turn came – it was then 11:30 a.m. – I handed over the license and my money through the wicket – only it was not quite a wicket.

Curtly, the clerk asked what this was for. I answered that it was to pay the foreign vehicle fee that was due at six months and that I had not know about previously. The clerk asked for the ownership papers for the vehicle. I told the clerk that I was required to leave the ownership papers at the Haifa Port. He said that I could not pay the fee without the ownership papers. I told him my situation and that I was in a Catch-22. I was leaving in another two days and could not get my vehicle out of the port any longer nor retrieve the ownership papers that had to be left with the vehicle. Yet I could not get the vehicle again to leave until I paid this fee.

He said, “Next.” In Hebrew, of course! I said I was not leaving the line until I could pay the fee. The Imam’s son encouraged me. This was his third time back in line because each time he was sent away and asked to bring another paper. The Israelis further down the line, instead of telling me to get out of the way, yelled, “Start a sit in.” I seemed to have the whole line behind me totally sympathetic to my plight and supporting me. The clerk announced that he was going on a tea break and closed the wicket.
He returned in twenty minutes – I was getting desperate because I knew government offices closed at 1:00 p.m. for the day. It was now almost noon. The clerk, without looking up, said I would have to go upstairs. He directed me to an official upstairs. That person would take care of the problem. I ran up the stairs, found the room, and was ushered in right away to see this official. I explained my plight. He asked, “What size of engine did the VW have?” I said I had no idea. He said that VW vans had either a 1200 or a 1600 cc engine. Again I said I had no idea. When he kept insisting on my trying to recall a figure, I said it must have been the larger figure because the VW I drove had lots of oomph. He asked whether I was sure. I said that I was not sure at all, but thought that must have been the case. He asked again whether I was sure. After the third time, to get the matter over, I said that I was pretty sure. So he gave me a signed slip with instructions and told me to go to the front of the line and see the clerk. I would not have to line up again.

I went to the front of the line – it was now 12:25 – and waited until the person being served finished. The Imam’s son was no longer there and I hoped he had received his license this time. No one in the line objected to my jumping the queue. I handed over my license, the money and the signed slip I had been given. He took the papers, counted the money and said that it was not enough. I said that was the amount I had been told in the port. He said that that was the amount for a 1200 cc engine. I had a 1600 cc engine. The amount required to be paid for a 1600 cc engine was three times the amount for a 1200 cc engine.

I despaired at my stupidity and failure to get the hints of the official upstairs. I asked in despair, “What can I do?” I had traded in all my excess lira and would have to go a bank and exchange more money and come back and I was not even sure I had that amount of cash freely available as I had transferred most of my assets back to Canada already. He said, wait a minute. I, and everyone else in the line, waited ten minutes. I was so embarrassed. I knew that those near the back of the line – there were about eight still lined up – could not possibly get served by 1:00. When he returned he told me that he would reduce the fee by half. I still did not have enough lira. There were no ATM machines then and the nearest bank was probably a mile away – we were in the boondocks.

I agreed to return the next day. He told me I would not have to line up. And true to his word, after I went to the bank first thing in the morning to obtain the extra lira I needed, I went right to the front of the line and within two minutes I had paid the fee and had the longed for stamped slip I needed. I left amazed at both the initiative of the bureaucrats and their obduracy. They could not and were not cowed by academics, imams or, as we shall see, billionaires. They were equal opportunity obstacles and innovators.

Gad Zeevi was a multi-billionaire. He owned part of Haifa’s Grand Canyon Mall, and real estate throughout Israel, Eastern Europe and the USA, owns the largest and best equipped private hospital in Israel and has been a pioneer in health tourism. He has investments in the media and in new hi-tech apps. He runs the largest import and freight forwarding agency with offices throughout Africa, Eastern Europe and America. He has been an importer and gained control of Japanauto in the late nineties to become the dominant importer of cars and trucks into Israel. The Ze’evi group is also onto the production, refining, distribution and sales of petroleum products both in Israel and the USA as well as in the construction and management of electric power stations. He has been, nevertheless, treated with much more bureaucratic interference than I was fitting to his wealth. And, possibly, sometimes more help. In some ways, however, Israel, in spite of now ranking with countries with the greatest gap between rich and poor, is still an egalitarian society.

When the Berlin Wall came down and Eastern European states initiated the privatization of their assets, Eastern European groups with money turned to pick up those assets at bargain basement prices. The Polish Group (Bagsik and Gasiorowski) was one of them. They decided to sell off their assets to do so. One was Paz Oil in Israel. They approached Gad Ze’evi to see if he was interested. They offered Paz to him at US$10 million less than they themselves had paid a year earlier because they saw much greater and faster profits in Eastern European assets then for sale. Ze’evi put a down payment of US$7.5 million and agreed to pay for the balance in equal installements every six months over the next four years. A contract was signed.

But it did not work out. During the due diligence period, Ze’evi claimed that something was amiss and refused to close the deal. Instead of backing off and absorbing losses for the work put in, Ze’evi took the Polish Group to court for refund of his deposit and legal costs. The issue went first to an arbitrator as provided in the contract and then to the courts and, as usual, dragged out for three years. Paz was tied up and the Polish Group sufered significant opportunity cost losses in not having the funds to gain control of Polish government assets. At the same time, Ze’evi had his $US7.5 million tied up and very large legal fees. The Polish Group lost even more, not only the lost opportunities to make large sums in other ways, but they finally sold Paz at one-quarter of the price that Ze’evi had agreed to pay. Both sides were huge losers.

The losses were not only financial. Although both sides poured money into public relations as part of their legal suit, both sides’ reputations suffered enormously. Gad Ze’evi was portrayed in terms bordering on antisemitic stereotypes. Further, his legal troubles had just begun. In March of 2001, he was arrested, along with others, and charged with fraud by the Israeli International Crimes Unit in what was called the Bezeq Affair. When Ze’evi purchased his 17.6% stake in Bezeq from Cable and Wireless for US$600 million in 1999, he evidently, as required by law, did not properly disclose his source of financing from Mikhail Chernoy who had come onto a large stash of cash when he sold control of the Bulgarian cell phone company to MobilTel. (I will have more to say on Mikhail Chernoy and his connection with Avigdor Lieberman in my last blog on Tycoons and Monopolies focused on the Eastern European Israeli billionaires.)

In 1999, Ze’evi had borrowed US$643 million from a consortium of Israel’s six largest banks led by the First International Bank of Israel. US$500 million of the loan was secured by the shares that he had purchased as well as a guarantee provided by a Swiss account controlled by Mikhail Chornoy for US$143 million. Evidently Mikhail Chernoy had not been disclosed as the one providing the guarantee. The banks claimed that, had they known, they would not have approved the loan.

When Ze’evi could not meet the terms of the loan, largely because of his losses in the Paz affair, the banks in 2002 put him into receivership and he lost control of the Bezeq stake. The receiver sold the shares in Bezeq for NIS 4.7 billion for a healthy profit, repaid the banks in full, repaid Chernoy US$107million ($36million had already been repaid in 2000) and enough held in trust until the courts settled the amount of interest owing to Chernoy. The balance went to Ze’evi. The criminal action, on the other hand, dragged on until 2009. Then, Tel-Aviv District Judge Oded Mudrik instructed that the Prosecutor settle since no criminal intent was uncovered in Cherney’s loan to Ze’evi.

There are several lessons to be learned from this affair. First, as I have written before, when there is smoke, there is not always fire. Second, becoming involved with intelligent, persistent and suspicious prosecutors in Israel is dangerous to one’s health. Third, any business person has to do due diligence, not only on the business financial aspects of a deal but on the personalities involved. Fourth, the financial costs of slip ups are enormous. Hence the huge amounts entrepreneurs pay legal firms to minimize possibilities of exposure to possible mistakes. Legal costs and potential legal costs constitute a significant, but largely unproductive cost of engaging in business transactions. Any actions the state can take to ensuring financial deals are totally above board while also minimizing exposure to risk can be one of the most important contributions that the state can make both to the efficiency and integrity of business transactions.

I have been AWOL after visiting my two youngest children in Victoria and Vancouver. (In August, Daniel is getting married on Vancouver Island where he lives; Gabriel is just finishing film school in Vancouver and his film was showing at the student film festival, When we were there, we learned he was flying to Miami Beach this past Sunday to receive a film award.)

One recent piece of news relative to Obama’s use of small tactical moves to advance the peace process has emerged. In a meeting yesterday of Arab League members with US officials, including Vice President Joe Biden and Secretary of State John Kerry, at Blair House yesterday, the Arab League for the first time backed the idea of comparable mutually agreed territorial swaps in a land for peace deal.

This week I will finish my series of profiles on Israeli billionaires, in particular, the ones from Eastern Europe, and offer some summary observations. I will cover:

Lev Leviev, like some other Israeli billionaires, relocated six years ago from Israel (B’nei Brak to London); he now occupies a US$70 million mansion in Hampstead. We already had a glancing acquaintance with Lev Leviev because of his association with Arkadi Gaydamak in Angola. Leviev and Gaydamak had become involved together in a joint venture to purchase a metallurgy plant in Kazakhstan in 1999 and subsequently when Gaydamak bought a 15 percent share of Africa Israel. As with most of Gaydamak’s partnerships, but very rare for Leviev, there was a falling out. In a London court last year (12 July), the High Court in London not only dismissed all legal claims of Gaydamak against Leviev (the suit was for a $1billion), but assessed legal costs against Gaydamak. The deal went back to 2001 when Gaydamak first entered the Angolan diamond market. Leviev brought to the deal his expertise in diamond cutting and conceived the idea of an Angolan controlled marketing of Angolan diamonds, a deal that has been very profitable for the Dos Santos family and his associates as well as for Leviev. There is no evidence that Leviev was involved in the arms for diamond trade, but the monopoly deal was, in part, designed to eliminate the trade in blood diamonds.

Leviev is a self-made billionaire. He arrived in Israel with his Lubavitcher family from Tashkent, Uzbekistan in 1971 at the age of fifteen but dropped out of school to learn diamond cutting. He lacked Dan Gertler’s family connections but his own inner ambition allowed him to master all eleven steps of diamond cutting without serving decades of apprenticeship. He paid his fellow cutters to teach him the requisite skills. By the age of 22, he had set up his own shop. By the age of 32, he had twelve of the most technologically developed diamond cutting and polishing plants. During that period of expansion, he established himself as a de Beers “sightholder” even though he was an outsider, a Bukharan Jew. He became one of the 100 or so individuals authorized by the de Beers cartel allowed to buy diamonds at fixed prices.

Just as he could not stand to be an outsider forced to buy diamonds from middle men rather than directly from de Beers, he soon chafed at having to buy rough diamonds through de Beers. In the upheavals in Eastern Europe, after receiving a blessing from Rabbi Menachem Schneerson, he convinced the Russian Minster of Energy to break the de Beers monopoly and, with his help by using the Lubavitcher network in the former Soviet Union, set up an indigenous cutting and polishing of diamonds operation in Russia so that the higher value polished diamonds could be exported. Leviev broke the de Beers monopoly. It was the same technique he would bring to Angola in 1997. In a joint venture with Alrosa, the Russian state diamond company, Leviev bought into the Catoca diamond mine. It helped that Dos Santos spoke Russian from his days as an engineering student in the Soviet Union so Leviev did not have to master Portugese.

Leviev now is the largest cutter and polisher of diamonds in the world. His company integrates the beginning of the business with the acquisition of rough diamonds to the retail level with high end stores in London, New York, Moscow, Dubai and other centres. His vertically integrated company gets its diamonds not only from Russia (Leviev is a personal friend of Putin) and Angola, but also Namibia, Alaska and the Northwest Territories in Canada where he was a pioneer in mining for diamonds.

Leviev’s diamond business is personally owned but he is also the controlling shareholder of Yehud, which owns Africa-Israeli Investments (AFI) in which he bought a 60% interest in 1996 for $400 million. AFI recently went through a financial restructuring that diluted his holdings from 75% to just under 53%. Like many other property developers, he got caught by the bursting American real estate bubble in 2007-2008 (just after the New York Times building and the Madison Avenue Clock Tower were purchased), the burst bubble in Europe – AFI owns property in Prague and London – and the more recent burst in the Russian bubble, ignoring that he bought his Hampstead home at the peak of the London market. Yehud also owns Gottex, the Israeli swimwear company, 1700 FINA gas stations in the American southwest, and a chain of 173 7-Elevens in New Mexico and Texas. AFI is a one-third owner of the Israel toll road, the Cross Israel Highway. It also owns the Russian language Israeli TV station, Vash Telecanal. Fortunately for him, AFI’s real estate investments in the USA, mainly in New York, have recovered a great deal of their lost value.

Leviev has mixed his political convictions with his investment strategies in assuming the role as the foremost developer in the West Bank with significant building projects in Har Homa, Maale Adumim, Zufim, Adam, Modiin Illit and Ariel. As a consequence, his jewellery stores have been the sites of pickets and protests and the British foreign ministry cancelled a prospective deal to rent space for its Israeli embassy in an AFI building in 2009 after a campaign led by Architects and Planners for Justice in Palestine. Some European Investment funds have also sold off their holdings in AFI, but it is not very clear in some cases whether this was because of perceived negative prospects of AFI or a response to protests. BlackRock, Investeringsforeningen Sydinvest, the Swedish AP1 pension fund and Dutch PFZW were joined by the US Teachers Insurance and Annuity Association College Retirement Equities Fund in selling their shares in AFI. Further, it is also not clear whether this sell off also precipitated the need for AFI to restructure.

Lev Leviev is possibly the most active philanthropist among the Israeli plutocrats and is certainly the foremost promoter of the restoration of Jewish life, culture and especially Jewish education primarily through the Jewish Learning Initiative in the former Soviet Union. He is President of the Federation of Jewish Communities of the CIS (FJC) representing the fifteen organized Jewish communities in the former Soviet Union. Leviev supports over 10,000 Jewish community civil servants, including 300 mostly Chabadnic rabbis as well as the extensive network of schools in which they teach..

Fathers are supposed to circumcise their own sons. Almost all hire a mohel or a certified doctor to perform the task. Not Leviev. One of the more interesting stories about Lev Leviev is that, without any training, at the age of 22 he followed his father’s practice and circumcised his own son, using his skills as a diamond cutter to get through. By now he has performed over a thousand circumcisions. Another is that he is a believer in women’s equality in the workplace. Two of his daughters have very high executive positions in his companies. Zvia, a daughter with four of her own children, runs the international marketing and mall businesses. Tomorrow, when Tamir Kazaz steps down as CEO of AFI, Leviev’s daughter, Hagit Leviev-Sofayev, a former executive of Deloitte in the economics department, is most likely to become CEO.

Leonid Nevzlin is from Moscow. As I shall explain, he is probably no longer the billionaire listed in Forbes in 2003, but he is included in this series because of the explanation. Nevzlin graduated from the Gubkin Institute of Oil and Gas in Moscow as a software engineer and worked as a computer programmer for the Foreign Trade Association (ZarubezhGeologia) in the Soviet Ministry of Geology. In 1987, he partnered with Mikhail Khordorkovsky and became Deputy Director of the Youth Centre for Scientific and Engineering Creativity just when Mikhail Gorbachev began his restructuring of the Soviet economy. He also headed the Center of Interdisciplinary Scientific–Technological programs (MNTP) that morphed into the Joint Company Menatep-Invest out of which the two partners established the Menatep Bank in 1990. Nevzlin became President. Menatep was used to found Yukos, where Nevzlin assumed the position of Vice-President. Yukos became the world’s largest non-state oil company in only five years.

The foundation of their wealth began with currency trading in the early nineties based on algorithms Nevzlin devised, and then buying up for cash the vouchers issued in the process of privatization, initially in state enterprises, and then in property at deeply discounted prices. The new Russian oligarchs, mostly Jewish, lent the money to the state Yeltsin ran, and the loans were secured by state assets. When the government defaulted on loan payments, the oligarchs seized the assets. Through buying vouchers and foreclosing on state loans, by the mid-nineties, Khodorkovsky and Nevzlin were very rich.

Nevzlin and Khodorkovsky bankrolled Yeltin’s re-election in 1996 for which Nevzlin was awarded the Russian Order of Friendship. In September 1997, Nevzlin became Deputy Director of the Russian news agency, ITAR-TASS, for a year. Nevzlin developed a plan to gradually transform ITAR-TASS into a joint-stock company. In 1999, Bank Menatep went belly-up in the Russian financial crisis of 1998-1999. Yukos was also in trouble, spending US$12 to pump oil with its outdated equipment that was only selling for $US8 per barrel. Nevzlin and Khodorkovsky not only saved the company by modernizing it, transforming the financial reporting to western methods to assure transparency and accountability, but mainly through the god’s of fortune as oil prices began their spectacular rise.

The two partners began to devote more time to the development of civil society and the two founded the Open Russian Federation to fund civil society projects. The two also funded a school for public administration. From March to December 2001, Nevzlin was president of the Russian Jewish Congress and he personally funded a number of Jewish historical and heritage research projects, including the establishment of the Moscow Jewish Cultural Center and the International Center for Russian and Eastern European Jewish Studies in Moscow. From November 2001 to March 2003, Nevzlin became a senator in the Federation Council of Russia representing Mordovia and became the first rector of a university without a PhD for the Russian State University for the Humanities. The two partners became the biggest supporters of civil society organizations providing at least 50% of the income of all of them while Khodorkovsky also donated a hundred million $US to the Russian State Humanities University.

In 2003, the political winds that had been changing over the previous four years became a whirlwind. Putin had assumed the presidency of Russia in 2000 after rising under Yeltsin as Acting President in 1999. By 2003 he was consolidating his power in preparation for running for president again in 2004. Though the economy had stabilized and had experienced enormous growth under his regime, fueled in good part by increases in the value of Russia’s oil and gas, Russia began also to regress in democratic terms. Part of that regression meant eliminating any economic centres of power that threatened Putin’s political power. You were either in bed with Putin or sentenced to the scrap heap of history. Putin targeted Vladimir Gusinsky, another Jewish oligarch, who owned a media company and two television stations. Gusinsky was charged and agreed to sign over his companies to the state and fled to Israel.

Khodorkovsky, in 2003 then the richest man in Russia, had as big an ego as Putin and challenged him in the political arena by funding civil society human rights and opposition groups. As an ex-KGB agent, Putin was wedded to doublespeak, doubletalk and double think while Khodorkovsky was a believer in saying what he thought without inhibitions. In February 2003, he refused in a direct meeting with Putin to buckle under. In fact, he directly challenged Putin at the meeting with a slide show arguing that political corruption was costing the Russian economy US$30 billion per year. Khodorkovsky and Nevzlin were true believers in the free market – he and Nevzlin had published a manifesto, The Man with the Ruble, extolling the virtues of capitalism. They wrote: “Our guiding light is Profit, acquired in a strictly legal way. Our Lord is His Majesty, Money, for it is only He who can lead us to wealth as the norm in life.” They had also become believers in free speech and human rights, transparency and accountability. However, Nevzlin, a more prudent man, was not willing to uphold his beliefs at the risk of his life.

Putin’s guiding light was power and Russian nationalism. He turned the power of the state apparatus against Yukos. At the meeting in February, Putin took umbrage at Khodorkovsky’s speech and in not very subtle terms issued his threat. “Some companies, including Yukos, have extraordinary reserves. The question is: How did the company get them? Your company had its own issues with taxes. To give the Yukos leadership its due, it found a way to settle everything and take care of all its problems with the state. But maybe this is the reason there is such competition to get into the tax academy?”

Nevzlin, who had mastered public relations, got the message and immediately went to take citizenship in Israel in 2003 and made efforts to move whatever funds he could salvage to safe havens. Khodorkovsky held his ground as other billionaires and millionaires fled Russia to save their lives (several were murdered abroad) and to avoid the wild west lawlessness of Russia where kidnappers and murderers in cahoots with the state ransomed children and killed at will, Khodorkovsky, as stubborn as Putin, refused to flee, even though Nevzlin warned him that the old laws still on the books could be used to prosecute them.

The squeeze began on 2 July 2003 when, their partner, Platon Lebedev, was arrested. Later in July, the head of security for Yukos, Alexi Pichugin, was also arrested and eventually sentenced to 24 years in prison for murder. Khodorkovsky could bend or flee. He not only stood his ground but ran a public campaign against Putin. By the time Khodorkovsky was arrested on 25 October at the Novosibirsk airport in Siberia at 8:00 in the morning as he was preparing to fly back to Moscow, Nevzlin was living in Israel where he fled with two other partners from Yukos, Vladimir Duvdov and Michail Brodno. Nevzlin has said that he had spoken to his friend just earlier and he seemed to know the consequences he faced.

So did Pavel Ivlev, a tax lawyer who never worked for Yukos or Khodorkovsky but was called as an expert witness at the trial even though he was the lawyer representing other Yukos employees who had been charged, a completely illegal move under any jurisdiction. In the pre-trial examination, he was told that he had to tell all – namely how the employees took sacks of cash out of Yukos to deliver to Khodorkovsky personally. Ivlev protested that he had no knowledge of that ever happening. He was told that if he said that, he too would be arrested. The next day, Ivlev fled the country and flew to Kiev and eventually his family joined him and they now live in New Jersey.

Three years after Mikhail Khodorkovsky was convicted of fraud and tax evasion after a ten month farcical trial, he was sentenced to nine years in prison and sent to Khodorkoovsky colony, YaG-14/10, a 9 hours flight and a 15 hour train ride from Moscow. In January 2004, an international warrant was issued for Nevzlin’s arrest, initially for evading US$930,000 in taxes for the 1999-2000 fiscal year, with illegal appropriation of shares in two Eastern Oil Company (VNK) subsidiaries, and, in July, for murder and attempted murder, specifically targeting businessman Sergei Gorin and his wife, and also Yevgeny Rybin, the president of the East Petroleum Company.

Moscow City Court tried Nevzlin in absentia and found him guilty of organizing five murders and sentenced him to life in prison. All efforts to extradite Nevzlin from Israel failed as the Israeli Supreme Court found that none of the evidence the Russian government presented was enough to even charge him let alone secure a conviction. The High Court of Justice in Israel ruled, “These are hearsay testimonies that do not even justify the appeal to extradite Nevzlin.” In the end, 42 Yukos employees were charged and sentenced. Yukos was sold at a bargain basement price to a company, Baikalfinansgrup capitalized at $US300 with no assets at all registered in a small town of Tver three hours drive from Moscow, the purchase financed by a US$9billion loan by the state oil company, Rosneft, to get rid of debt in return for Baikalfinansgrup’s shares as collateral. Ironically, the process that the partners had initially used to acquire the assets was now put in reverse gear.

While in prison, Khodorkovsky and Lebedev were charged in March 2009 with stealing Yukos’ oil between 1998 to 2003. The trial ended in December 2010 and the two were sentenced to a further 14 year prison term. It was clear that Putin had determined that the two would never again be out of prison.

Since leaving Russia, Nevzlin has repeatedly criticized the Putin regime and offered monies to opponents. He set up an institute on Eastern European and Russian Judaism, The Leonid Nevzlin Research Center for Russian and Eastern European Jewry, at the Hebrew University in Jerusalem. Twin institutions were funded in Moscow, Vilnius and Kiev. He has helped create an endowment for Beth Hatefutsoth, the Nahum Goldmann Museum of the Jewish Diaspora next to Tel Aviv University and became chair of its Board, funding the Nevzlin Program for the Study of Jewish Civilization at Tel Aviv University and the International School for Jewish Peoplehood Studies at Beth Hatefutsoth. He also helped saved the newspaper, Haaretz, by buying a 20% interest.